10-Q 1 k72399e10vq.txt QUARTERLY REPORT FOR PERIOD ENDED SEPT. 30, 2002 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 FORM 10-Q (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2002 or [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission file number: 333-81584 DELAWARE MAJESTIC INVESTOR HOLDINGS, LLC 33-4468392 DELAWARE MAJESTIC INVESTOR CAPITAL CORP. 36-4471622 (State or other (Exact name of registrant (I.R.S. Employer jurisdiction of as specified in its charter) Identification No.) incorporation or organization) ONE BUFFINGTON HARBOR DRIVE GARY, INDIANA 46406-3000 (219) 977-7823 (Registrant's address and telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to filing requirements for the past 90 days. Yes X No ------ ------ Shares outstanding of each of the registrant's classes of common stock as of September 30, 2002: Class Number of shares ----- ---------------- Not applicable Not applicable MAJESTIC INVESTOR HOLDINGS, LLC INDEX PART I FINANCIAL INFORMATION PAGE NO. -------- Item 1. Consolidated Financial Statements Consolidated Balance Sheets as of September 30, 2002 and December 31, 2001...................................1 Consolidated Statements of Operations for the three and nine months ended September 30, 2002 and the quarter and three quarters ended September 30, 2001.....2 Consolidated Statements of Cash Flows for the nine months ended September 30, 2002 and September 30, 2001.........3 Notes to Financial Statements....................................4 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations....................21 Item 3. Quantitative and Qualitative Disclosures About Market Risk......32 Item 4. Controls and Procedures.........................................32 PART II OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K................................33 SIGNATURES.................................................................34 CERTIFICATIONS.............................................................35 i PART 1 - FINANCIAL INFORMATION ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS MAJESTIC INVESTOR HOLDINGS, LLC CONSOLIDATED BALANCE SHEETS (UNAUDITED)

The accompanying notes are an integral part of these consolidated financial statements. 1 MAJESTIC INVESTOR HOLDINGS, LLC CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)

The accompanying notes are an integral part of these consolidated financial statements. 2 MAJESTIC INVESTOR HOLDINGS, LLC CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS. 3 MAJESTIC INVESTOR HOLDINGS, LLC NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) NOTE 1. BASIS OF PRESENTATION Majestic Investor Holdings, LLC (the "Company"), is a Delaware limited liability company formed on September 14, 2001. The Company owns and operates three Fitzgeralds brand casinos through its wholly-owned subsidiaries, Barden Mississippi Gaming, LLC, Barden Colorado Gaming, LLC and Barden Nevada Gaming, LLC, each of which is a "restricted subsidiary" of the Company under the Indenture relating to the Company's 11.653% Senior Secured Notes (the "Notes"). Majestic Investor Capital Corp. ("MICC"), another wholly-owned subsidiary of the Company, was formed specifically to facilitate the offering of the Company's Notes and does not have any material assets or operations. The Company is a wholly-owned subsidiary of Majestic Investor, LLC and an indirect wholly-owned subsidiary of The Majestic Star Casino, LLC ("Majestic Star"), owner and operator of the Majestic Star Casino, a riverboat casino located at Buffington Harbor in Gary, Indiana. The Company is indirectly wholly-owned and controlled by Don H. Barden, the Company's Manager, Chairman, President and Chief Executive Officer. Except where otherwise noted, the words "we," "us," "our" and similar terms, as well as the "Company," refer to Majestic Investor Holdings, LLC and all of its subsidiaries. The accompanying consolidated financial statements are unaudited and include the accounts of the Company's wholly-owned subsidiaries, Majestic Investor Capital Corp., Barden Mississippi Gaming, LLC, Barden Colorado Gaming, LLC and Barden Nevada Gaming, LLC. All significant intercompany transactions and balances have been eliminated. These financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (which include normal recurring adjustments) considered necessary for a fair presentation of the results for the interim period have been made. The results for the three and nine months ended September 30, 2002 are not necessarily indicative of results to be expected for the full fiscal year. The financial statements should be read in conjunction with the financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 2001. Certain reclassifications have been made to the 2001 financial statements to conform to the 2002 presentations. These reclassifications have no effect on previously reported net income. NOTE 2. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS In April 2002, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 145, "Rescission of FASB statements No. 4, 44 and 64, Amendment of FASB Statement No. 13 and Technical Corrections" which is effective for fiscal years beginning after May 15, 2002. SFAS No. 145 updates, clarifies and simplifies existing accounting pronouncements. Management does not expect SFAS No. 145 to have a material impact on the Company's consolidated financial position, results of operations or cash flows. In June 2002, the FASB issued SFAS No. 146 "Accounting for Costs Associated with Exit or Disposal Activities" which will become effective for exit or disposal activities initiated 4 NOTE 2. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS (CONTINUED) after December 31, 2002. SFAS No. 146 supercedes Emerging Issues Task Force Issue No. 94-3 "Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity." SFAS No. 146 requires that a liability for a cost associated with an exit or disposal activity be recognized when the liability is incurred and states that an entity's commitment to an exit plan, by itself, does not create a present obligation that meets the definition of a liability. SFAS No. 146 also establishes that fair value is the objective for initial measurement of the liability. Adoption of SFAS No. 146 will have no impact on historical consolidated financial position or results of operations. In October 2002, the FASB issued SFAS No. 147, "Acquisition of Certain Financial Institutions," which is not applicable to the Company. NOTE 3. COMMITMENTS AND CONTINGENCIES GAMING REGULATIONS The ownership and operation of our casino gaming facilities are subject to various state and local regulations in the jurisdictions where they are located. In Nevada, our gaming operations are subject to the Nevada Gaming Control Act, and to the licensing and regulatory control of the Nevada Gaming Commission, the Nevada State Gaming Control Board and various local ordinances and regulations, including, without limitation, applicable city and county gaming and liquor licensing authorities. In Mississippi, our gaming operations are subject to the Mississippi Gaming Control Act, and to the licensing and/or regulatory control of the Mississippi Gaming Commission, the Mississippi State Tax Commission and various state and local regulatory agencies, including liquor licensing authorities. In Colorado, our gaming operations are subject to the Limited Gaming Act of 1991, which created the Division of Gaming within the Colorado Department of Revenue and the Colorado Limited Gaming Control Commission to license, implement, regulate and supervise the conduct of limited gaming. Our operations are also subject to the Colorado Liquor Code and the state and local liquor licensing authorities. In addition, as Majestic Star does business in the State of Indiana, the Company is subject to certain reviews by the Indiana Gaming Commission. The Company's directors, officers, managers and key employees are required to hold individual licenses, the requirements for which vary from jurisdiction to jurisdiction. Licenses and permits for gaming operations and of individual licensees are subject to revocation or non-renewal for cause. Under certain circumstances, holders of our securities are required to secure independent licenses and permits. NOTE 4. ACQUISITIONS On December 6, 2001, the Company completed the acquisition of substantially all of the assets and assumed certain liabilities of Fitzgeralds Las Vegas, Inc. ("Fitzgeralds Las Vegas"), Fitzgeralds Mississippi Inc. ("Fitzgeralds Tunica") and 101 Main Street Limited Liability Company ("Fitzgeralds Black Hawk") (the "Fitzgeralds assets") for approximately $152.7 million in cash, which includes the purchase price of $149.0 million and professional fees and other expenses related to the acquisition. Pursuant to the terms of the purchase and sale agreement, the parties agreed to a $3.8 million reduction on May 9, 2002, based upon a negotiated settlement of the value of working capital at December 6, 2001. We are accounting for the acquisition under the purchase method. Accordingly, the purchase price is allocated to the assets acquired and liabilities assumed based upon their estimated fair values at the date of acquisition. We determined the estimated fair value of property and equipment and intangible assets based upon third-party valuations. 5 NOTE 4. ACQUISITIONS (CONTINUED) The purchase price was determined based upon estimates of future cash flows and the net worth of the assets acquired. Majestic Investor Holdings, LLC funded the acquisition through the issuance of its 11.653% Senior Secured Notes. The following table summarizes the estimated fair value of the assets acquired and the liabilities assumed at the acquisition date.

Intangible assets primarily include $9.8 million for customer relationships, $3.7 million for tradename and $5.2 million for gaming licenses. Intangible assets for customer relationships and tradenames are being amortized over a period of 8-10 years. In accordance with SFAS No. 142, goodwill and other indefinite lived intangible assets, such as the Company's gaming license, are not amortized but instead are subject to impairment tests at least annually. NOTE 5. OTHER INTANGIBLE ASSETS The gross carrying amount and accumulated amortization of the Company's intangible assets, other than goodwill, as of September 30, 2002, are as follows:

6 NOTE 5. OTHER INTANGIBLE ASSETS (CONTINUED) The amortization expense recorded on the intangible assets for the three and nine months ended September 30, 2002 was $0.4 million and $1.2 million, respectively. The estimated amortization expense for each of the five succeeding fiscal years is as follows:

NOTE 6. GOODWILL The changes in the carrying amount of goodwill for the nine months ended September 30, 2002 are as follows:

The increase in goodwill acquired primarily relates to professional fees incurred by the Company related to the acquisition of Fitzgeralds Tunica, Fitzgeralds Black Hawk and Fitzgeralds Las Vegas. The decrease in goodwill is primarily due to a $3.8 million purchase price adjustment resulting from the final purchase price settlement of the valuation of the assets and liabilities of the Fitzgeralds Las Vegas, Fitzgeralds Tunica and Fitzgeralds Black Hawk properties and adjustments of estimates of liabilities for slot based programs. In accordance with FAS No.142, goodwill is not amortized but instead is subject to impairment tests at least annually. 7 NOTE 7. SEGMENT INFORMATION The Company owns and operates three properties as follows: a casino and hotel located in downtown Las Vegas, Nevada; a casino and hotel located in Tunica, Mississippi; and a casino located in Black Hawk, Colorado (collectively, the "Properties"). The Company identifies its business in three segments based on geographic location. The Properties market in each of their segments primarily to middle-income guests, emphasizing their Fitzgeralds brand and their "Fitzgerald Irish Luck" theme. The major products offered in each segment are as follows: casino, hotel rooms (except in Black Hawk, Colorado) and food and beverage. The accounting policies of each business segment are the same as those described in the summary of significant accounting policies previously described in the Company's Annual Report on Form 10-K for the year ended December 31, 2001. There are minimal inter-segment sales. Corporate costs are allocated to the business segment through management fees from Majestic Star and are reflected in "General and Administrative" expenses. A summary of the Properties' operations by business segment for the three and nine months ended September 30, 2002 and September 30, 2001 is presented below (in thousands): 8

(1) Unallocated and other include corporate items and eliminations that are not allocated to the operating segments. (2) The predecessor company discontinued recording depreciation and amortization of their property and equipment due to the filing of the bankruptcy cases on December 5, 2000. (a) The segment information provided is derived from prior year consolidated financial information provided by the predecessor company and is for the quarter and three quarters ended September 30, 2001 9 NOTE 8. RELATED PARTY TRANSACTIONS During the nine months ended September 30, 2002, distributions of $1,844,000 were paid to Barden Development Inc. ("BDI") in accordance with the Management Agreement between the Company and BDI dated December 5, 2001. In December 2001, the Company issued a $700,000 note to BDI. The note bears interest at a rate of 7% per annum. The principal and accrued but unpaid interest are due and payable in full on December 12, 2002. NOTE 9. SUPPLEMENTAL GUARANTOR FINANCIAL INFORMATION The Company's $152.6 million, 11.653% Senior Secured Notes are unconditionally and irrevocably guaranteed, jointly and severally, by all of the restricted subsidiaries of the Company. The guarantees rank senior in right of payment to all existing and future subordinated indebtedness of these restricted subsidiaries and equal in right of payment with all existing and future senior indebtedness of these restricted subsidiaries. The following condensed consolidating information presents balance sheets as of September 30, 2002 and December 31, 2001, statements of operations for the three and nine months ended September 30, 2002 and statements of cash flows for the nine months ended September 30, 2002 of the Company, the guarantor subsidiaries (on a combined basis) and the elimination entries necessary to combine such entities on a consolidated basis. MICC, a wholly-owned subsidiary of the Company, is a non-guarantor subsidiary. However, MICC does not have any material assets, obligations or operations. Therefore, no non-guarantor subsidiary information has been presented below. 10 Condensed consolidating balance sheets as of September 30, 2002 (Unaudited)

(a) To eliminate intercompany receivables and payables. (b) To eliminate intercompany accounts and investment in subsidiaries. 11 Condensed consolidating balance sheets as of December 31, 2001

(a) To eliminate intercompany receivables and payables. (b) To eliminate intercompany accounts and investment in subsidiaries. 12 CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2002 (UNAUDITED)

(a) To eliminate equity in net income of subsidiaries. 13 CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2002 (UNAUDITED)

(a) To eliminate equity in net income of subsidiaries. 14 CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2002 (UNAUDITED)

(a) To eliminate intercompany receivables and payables. 15 NOTE 10. SUPPLEMENTAL CONSOLIDATING INFORMATION The following information presents consolidating balance sheets as of September 30, 2002, consolidating statements of operations for the three and nine months ended September 30, 2002, and consolidating statements of cash flows for the nine months ended September 30, 2002. 16 MAJESTIC INVESTOR HOLDINGS, LLC CONSOLIDATING BALANCE SHEETS AS OF SEPTEMBER 30, 2002 (UNAUDITED)

17 CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2002 (UNAUDITED)

18 CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2002 (UNAUDITED)

19 MAJESTIC INVESTOR HOLDINGS, LLC CONSOLIDATING STATEMENTS OF CASH FLOWS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2002 (UNAUDITED)

20 NOTE 11. SUBSEQUENT EVENTS On October 17, 2002, the Company redeemed $865,000 of the 11.653% Senior Secured Notes at a discount to par of 87 3/4%, plus accrued interest of $38,359. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS STATEMENT OF FORWARD-LOOKING INFORMATION This quarterly report includes statements that constitute "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, and are subject to the safe harbor provisions of those sections and the Private Securities Litigation Reform Act of 1995. Words such as "believes," "anticipates," "estimates", "plans", "intends", "will", "could" or "expects" used in the Company's press releases and reports filed with the Securities and Exchange Commission are intended to identify forward-looking statements. All forward-looking statements involve risks and uncertainties. Although the Company believes its expectations are based upon reasonable assumptions within the bounds of its current knowledge of its business and operations, there can be no assurances that actual results will not materially differ from expected results. The Company cautions that these and similar statements included in this report and in previously filed reports are further qualified by important factors that could cause actual results to differ materially from those in the forward-looking statements. Such factors include, without limitation: the ability to fund planned development needs and to service debt from existing operations; the ability to successfully integrate the three Fitzgeralds casinos; increased competition in existing markets or the opening of new gaming jurisdictions; a decline in the public acceptance of gaming; the limitation, conditioning or suspension of our gaming licenses; increases in or new taxes imposed on gaming revenues, taxes on gaming devices; a finding of unsuitability by regulatory authorities with respect to the Company or its officers or key employees; loss and/or retirement of key executives; a significant increase in fuel or transportation prices; adverse economic conditions in the Company's markets; severe and unusual weather in our markets; non-renewal of the Company's or any of its operating subsidiaries' gaming licenses from the appropriate governmental authorities in Nevada, Mississippi and Colorado; and future occurrences of terrorist attacks or other destabilizing events. We caution readers not to place undue reliance on forward-looking statements, which speak only as of the date thereof. All subsequent written and oral forward-looking statements attributable to us are expressly qualified in their entirety by the cautionary statements and factors that may affect future results contained throughout this report. The Company undertakes no obligation to publicly release any revisions to such forward-looking statements to reflect events or circumstances after the date hereof. The following discussion should be read in conjunction with, and is qualified in its entirety by, our financial statements, including the notes thereto listed in Item 1. OVERVIEW The Company was formed on September 14, 2001 and commenced operations of the Fitzgeralds casinos on December 7, 2001, and accordingly has a limited operating history. Therefore, the discussion of operations herein will focus on events and the Company's revenues and expenses during the three and nine months ended September 30, 2002 and the combined results of operations of the three Fitzgeralds casino properties for the quarter and nine months ended September 30, 2001. All prior year comparative financial information for the Fitzgeralds properties has been derived from the predecessor's unaudited financial statements and other financial disclosures made to the public. The gaming operations of the Company's properties may be seasonal and, depending on the location and other circumstances, the effects of such seasonality could be significant. The 21 properties' results are affected by inclement weather in relevant markets. For example, the Fitzgeralds Black Hawk site, located in the Rocky Mountains of Colorado, is subject to snow and icy road conditions during the winter months. Any such severe weather conditions may discourage potential customers from visiting the Black Hawk facilities. Also, at Fitzgeralds Las Vegas, business levels are generally weaker from Thanksgiving through the middle of January (except during the week between Christmas and New Year's) and throughout the summer, and generally stronger from mid-January through Easter and from mid-September through Thanksgiving. At Fitzgeralds Tunica and Fitzgeralds Black Hawk, business levels are typically weaker from Thanksgiving through the end of the winter and typically stronger from mid-June to mid-November. Accordingly, the Company's results of operations are expected to fluctuate from quarter to quarter and the results for any fiscal quarter may not be indicative of results for future fiscal quarters. On October 21, 2002, Jon S. Bennett was named as the Company's Vice President and Chief Financial Officer. Mr. Bennett will oversee all aspects of the Company's financial management, accounting and reporting processes for its four casinos and two hotels. RESULTS OF OPERATIONS The following table sets forth information derived from the Company's consolidated statements of operations for the three and nine months ended September 30, 2002, and the combined statements of operations for Fitzgeralds Las Vegas, Inc., Fitzgeralds Mississippi, Inc. and 101 Main Street Limited Liability Company for the quarter and three quarters ended September 30, 2001, expressed as a percentage of gross revenues. 22

NOTES: (1) Adjusted EBITDA (defined as earnings before interest, income taxes, depreciation and amortization, (gain)/loss on sale of assets, other non-operating expenses and excluding pre-opening costs associated with the acquisition of the Fitzgeralds casinos and reorganization items related to the bankruptcy of the predecessor company) is presented solely as a supplemental disclosure to assist in the evaluation of the Company's ability to generate cash flow. In particular, the Company believes that an analysis of Adjusted EBITDA enhances the understanding of the financial performance of companies with substantial depreciation and amortization. Results for any one or more periods are not necessarily indicative of annual results or continuing trends. 23 THREE MONTHS ENDED SEPTEMBER 30, 2002 (SUCCESSOR) COMPARED TO QUARTER ENDED SEPTEMBER 30, 2001 (PREDECESSOR) For the three and nine months ended September 30, 2002, the Company utilized a calendar financial reporting period resulting in ninety-two and two hundred seventy three days of operations, as compared to the period ended September 30, 2001, in which a "4-4-5" (weeks) reporting period was used resulting in ninety-one and two hundred seventy three days of operations. The Company believes that the additional day of operations in the prior year period does not have a significant impact on the comparability of financial information used in the following "Management's Discussion and Analysis of Financial Condition and Results of Operations". Consolidated gross revenues for the three months ended September 30, 2002 amounted to approximately $51,616,000, an increase of approximately $148,000, or 0.3%, from gross revenues recorded in the quarter ended September 30, 2001. For the three months ended September 30, 2002, gross revenues for Fitzgeralds Tunica accounted for $27,730,000, or 53.7% of consolidated gross revenues, Fitzgeralds Black Hawk accounted for $10,485,000, or 20.3% of consolidated gross revenues and Fitzgeralds Las Vegas accounted for $13,401,000, or 26.0% of consolidated gross revenues, compared to $25,758,000, or 50.0%, $11,448,000, or 22.2% and $14,262,000, or 27.8%, respectively, for the quarter ended September 30, 2001. The Company's business can be separated into four operating departments: casino, rooms (except Fitzgeralds Black Hawk), food and beverage and other. Consolidated casino revenues for the three months ended September 30, 2002 totaled approximately $41,843,000, or 81.0% of consolidated gross revenues, of which slot machines accounted for approximately $37,444,000, or 89.5%, and table games accounted for approximately $4,399,000, or 10.5%, compared to $41,676,000, or 81.0% of consolidated gross revenues, of which slot machines accounted for approximately $37,418,000, or 89.8%, and table games accounted for approximately $4,258,000, or 10.2%, for the quarter ended September 30, 2001. Casino revenues attributed to Fitzgeralds Tunica were $22,952,000, or 82.8% of its gross revenues, of which $20,758,000, or 90.4%, were derived from slot machine revenues, and $2,194,000, or 9.6%, were derived from table games revenues for the three months ended September 30, 2002, compared to $21,027,000, or 81.6% of its gross revenues, of which $18,832,000, or 89.6%, were derived from slot machines revenues, and $2,195,000, or 10.4%, were derived from table games revenues for the quarter ended September 30, 2001. Casino revenues attributed to Fitzgeralds Black Hawk were $9,892,000, or 94.3% of its gross revenues, of which $9,700,000, or 98.1%, were derived from slot machine revenues, and $192,000, or 1.9%, were derived from table game revenues for the three months ended September 30, 2002 compared to $10,697,000, or 93.4% of its gross revenues, of which $10,476,000, or 97.9%, were attributed to slot machine revenues and $221,000, or 2.1% were derived from table game revenues for the quarter ended September 30, 2001. Casino revenues attributed to Fitzgeralds Las Vegas were $8,999,000, or 67.1% of its gross revenues, of which $6,986,000, or 77.6%, were derived from slot machine revenues, and $2,013,000, or 22.4%, were derived from table game revenues for the three months ended September 30, 2002, compared to casino revenues of $9,951,000, or 69.8% of its gross revenues, of which $8,110,000, or 81.5%, were attributed to slot machines revenues and $1,841,000, or 18.5%, were derived from table game revenues for the quarter ended September 30, 2001. The consolidated average number of slot machines in operation was 2,871 during the three months ended September 30, 2002 compared to 2,948 during the quarter ended September 30, 2001. Fitzgeralds Tunica accounted for 1,375, or 47.9%, Fitzgeralds Black Hawk accounted for 591, or 20.6%, and Fitzgeralds Las Vegas accounted for 905, or 31.5%. The consolidated average win per slot machine per day was approximately $142 for the three months ended 24 September 30, 2002, with an average of approximately $164, $178 and $84 at Fitzgeralds Tunica, Fitzgeralds Black Hawk and Fitzgeralds Las Vegas, respectively, compared to approximately $148, $193 and $93, respectively, for the quarter ended September 30, 2001. The consolidated average number of table games in operation during the three months ended September 30, 2002 was 65, of which Tunica accounted for 34, or 52.3%, Fitzgeralds Black Hawk accounted for 6, or 9.2%, and Fitzgeralds Las Vegas accounted for 25, or 38.5%, compared to 62, of which Tunica accounted for 33, or 53.2%, Fitzgeralds Black Hawk accounted for 6, or 9.7%, and Fitzgeralds Las Vegas accounted for 23, or 37.1%, during the quarter ended September 30, 2001. The consolidated average win per table game per day during the three months ended September 30, 2002 was approximately $688, with an average of approximately $701, $348 and $751 at Fitzgeralds Tunica, Fitzgeralds Black Hawk and Fitzgeralds Las Vegas, respectively, compared to approximately $713, with an average of approximately $731, $405 and $767 at Fitzgeralds Tunica, Fitzgeralds Black Hawk and Fitzgeralds Las Vegas, respectively during the quarter ended September 30, 2001. With respect to Fitzgeralds Black Hawk the maximum wager is limited to $5.00. Consolidated room revenues for the three months ended September 30, 2002 was approximately $3,809,000, or 7.4% of gross revenues, compared to approximately $3,911,000 or 7.6%, for the quarter ended September 30, 2001. Of this amount, Fitzgeralds Tunica accounted for $2,110,000, or 55.4%, with 507 rooms and Fitzgeralds Las Vegas accounted for $1,699,000, or 44.6%, with 638 rooms, compared to $2,107,000, or 53.9%, at Fitzgeralds Tunica and $1,804,000, or 46.1% at Fitzgeralds Las Vegas during the quarter ended September 30, 2001. During the three months ended September 30, 2002, at Fitzgeralds Tunica the average daily rate was $48 and the occupancy rate was 97.7% and at Fitzgeralds Las Vegas the average daily rate was $33 and the occupancy rate was 88.6%, compared to $47 and 95.6% at Fitzgeralds Tunica and $34 and 92.4% at Fitzgeralds Las Vegas during the quarter ended September 30, 2001. Consolidated food and beverage revenues for the three months ended September 30, 2002 amounted to $4,936,000, or 9.6% of consolidated gross revenues, compared to $4,984,000, or 9.7%, for the quarter ended September 30, 2001. Of this amount, Fitzgeralds Tunica accounted for $2,341,000, or 47.4%, Fitzgeralds Black Hawk accounted for $521,000, or 10.6%, and Fitzgeralds Las Vegas accounted for $2,074,000, or 42.0%, compared to $2,298,000, or 46.1%, $686,000, or 13.8%, and $2,000,000, or 40.1%, respectively, during the quarter ended September 30, 2001. Other consolidated revenues consisted primarily of commission and retail income and totaled approximately $1,028,000, or 2.0% of consolidated gross revenues for the three months ended September 30, 2002, compared to $896,000, or 1.7% of consolidated gross revenues during the quarter ended September 30, 2001. Of this amount, Fitzgeralds Tunica accounted for $325,000, or 31.7%, Fitzgeralds Black Hawk accounted for approximately $72,000, or 7.0%, and Fitzgeralds Las Vegas accounted for $630,000, or 61.3%, compared to $326,000, or 36.2%, $65,000, or 7.2%, and $507,000, or 56.6%, respectively, during the quarter ended September 30, 2001. Consolidated promotional allowances included in the consolidated gross revenues for the three months ended September 30, 2002, were $8,311,000, or 16.1% of consolidated gross revenues compared to $8,155,000, or 15.8% of consolidated gross revenues during the quarter ended September 30, 2001. Of this amount, Fitzgeralds Tunica accounted for $5,321,000, or 64.0%, Fitzgeralds Black Hawk accounted for $1,424,000, or 17.1%, and Fitzgeralds Las Vegas accounted for $1,566,000, or 18.9%, compared to $4,645,000, or 57.0%, $1,923,000, or 23.6%, and $1,587,000, or 19.4%, respectively, during the quarter ended September 30, 2001. 25 Consolidated casino operating expenses for the three months ended September 30, 2002, were $15,072,000, or 29.2% of consolidated gross revenues and 36.0% of casino revenues compared to $14,055,000, or 27.3% of consolidated gross revenues and 33.7% of consolidated casino revenues during the quarter ended September 30, 2001. These expenses were primarily comprised of salaries, wages and benefits, and operating expenses of the casinos. Of the consolidated casino operating expenses, Fitzgeralds Tunica accounted for $7,815,000, or 51.8%, Fitzgeralds Black Hawk accounted for $2,557,000, or 17.0%, and Fitzgeralds Las Vegas accounted for $4,700,000, or 31.2%. Consolidated general and administrative expenses for the three months ended September 30, 2002 were $6,430,000, or 12.5% of consolidated gross revenues compared to $5,707,000, or 11.1% for the quarter ended September 30, 2001. During the three months ended September 30, 2002, Fitzgeralds Tunica accounted for $2,898,000, or 45.1%, Fitzgeralds Black Hawk accounted for $1,129,000, or 17.6%, Fitzgeralds Las Vegas accounted for $2,395,000, or 37.3% and unallocated corporate expenses accounted for approximately $8,000. Consolidated depreciation and amortization for the three months ended September 30, 2002 was approximately $3,825,000, or 7.4% of consolidated gross revenues compared to $0 in the quarter ended September 30, 2001. The increase of $3,825,000 was due to the discontinuance of the recognition of depreciation and amortization by Fitzgeralds Gaming Corporation subsequent to the filing of the Bankruptcy Cases on December 5, 2000. During the three months ended September 30, 2002, Fitzgeralds Tunica accounted for $1,866,000, or 48.8%, Fitzgeralds Black Hawk accounted for $364,000, or 9.5%, and Fitzgeralds Las Vegas accounted for $938,000, or 24.5% of consolidated depreciation and amortization expense. Corporate amortization of deferred financing costs accounted for $657,000, or 17.2% of consolidated depreciation and amortization expense. Of the consolidated depreciation and amortization expense, approximately $2,475,000, or 64.7%, is depreciation expense, and $1,350,000, or 35.3%, is amortization expense. Consolidated operating income for the three months ended September 30, 2002 was $4,534,000, or 8.7% of consolidated gross revenues compared to $8,614,000, or 16.8% for the quarter ended September 30, 2001. The $4,080,000 decrease was primarily due to the discontinuance of the recognition of depreciation and amortization by the predecessor in the prior year. Fitzgeralds Tunica accounted for operating income of $3,867,000, or 85.3%, Fitzgeralds Black Hawk accounted for operating income of $2,254,000, or 49.7%, Fitzgeralds Las Vegas accounted for operating loss of $922,000, or (20.3)%, and the unallocated corporate loss principally for amortization was $666,000, or (14.7)% of consolidated operating income for the quarter ended September 30, 2002, compared to $5,249,000, or 60.9%, $2,649,000, or 30.8%, a loss of $281,000, or (3.3)%, and intercompany eliminations of $997,000, or 11.7%, respectively, for the quarter ended September 30, 2001. Consolidated net interest expense for the three months ended September 30, 2002 was approximately $4,430,000, or 8.6% of consolidated gross revenues compared to approximately $2,000 of net interest income during the quarter ended September 30, 2001. The $4,432,000 increase is attributable to interest expense associated with the 11.653% Senior Secured Notes. The predecessor companies discontinued accruing interest on their debt on December 5, 2000 with the commencement of the Bankruptcy Cases. Fitzgeralds Tunica accounted for interest income of $8,000, Fitzgeralds Black Hawk accounted for interest income of $2,000, Fitzgeralds Las Vegas accounted for net interest expense of $5,000 and the unallocated corporate net interest expense primarily associated with the 11.653% Senior Secured Notes was approximately 26 $4,435,000 during the three months ended September 30, 2002 compared to net interest expense of approximately $0, $0 and $2,000, respectively, during the quarter ended September 30, 2001. As a result of the foregoing, the Company realized a consolidated net income of approximately $93,000 for the three months ended September 30, 2002 compared to net income of approximately $8,626,000 for the quarter ended September 30, 2001. The $8,533,000 or 98.9% decrease is principally attributed to an increase in depreciation and amortization expense and interest expense, as previously discussed. Adjusted EBITDA is presented solely as a supplemental disclosure and is used by the Company to assist in the evaluation of the cash generating ability of its gaming business. Consolidated Adjusted EBITDA represents earnings before interest, income taxes, depreciation and amortization, (gain)/loss on sale of assets, other non-operating expenses and excluding pre-opening costs associated with the acquisition of the Fitzgeralds casinos and reorganization items related to the bankruptcy of the predecessor company. Consolidated Adjusted EBITDA for the three months ended September 30, 2002 was $8,369,000 of which Fitzgeralds Tunica accounted for $5,733,000, Fitzgeralds Black Hawk accounted for $2,628,000, Fitzgeralds Las Vegas accounted for $16,000 and approximately $(8,000) was associated with unallocated corporate general and administrative expenses. Consolidated Adjusted EBITDA for the quarter ended September 30, 2001 was $7,693,000 of which Fitzgeralds Tunica accounted for $5,200,000, Fitzgeralds Black Hawk accounted for $2,641,000 and Fitzgeralds Las Vegas accounted for $(148,000). Adjusted EBITDA should be viewed only in conjunction with all of the Company's financial data and statements, and should not be construed as an alternative either to income from operations (as an indicator of the Company's operating performance) or to cash flows from operating activities as a measure of liquidity. NINE MONTHS ENDED SEPTEMBER 30, 2002 (SUCCESSOR) COMPARED TO NINE MONTHS ENDED SEPTEMBER 30, 2001 (PREDECESSOR) Consolidated gross revenues for the nine months ended September 30, 2002 amounted to approximately $154,274,000, an increase of $846,000, or 0.6%, from consolidated gross revenues recorded in the nine month period ended September 30, 2001. For the nine months ended September 30, 2002, gross revenues for Fitzgeralds Tunica accounted for $83,059,000, or 53.8% of consolidated gross revenues, Fitzgeralds Black Hawk accounted for $29,336,000, or 19.0% of gross revenues and Fitzgeralds Las Vegas accounted for $41,879,000, or 27.2% of consolidated gross revenues, compared to $77,381,000, or 50.4%, $31,292,000, or 20.4%, and $44,755,000, or 29.2%, respectively, for the nine month period ended September 30, 2001. The Company's business can be separated into four operating departments: casino, rooms (except Fitzgeralds Black Hawk), food and beverage and other. Consolidated casino revenues for the nine months ended September 30, 2002 totaled approximately $124,624,000, or 80.7% of consolidated gross revenues, of which slot machines accounted for approximately $110,609,000, or 88.8%, and table games accounted for approximately $14,015,000, or 11.2%, compared to casino revenues of approximately $123,242,000, or 80.3% of consolidated gross revenues, of which slot machines accounted for approximately $109,525,000, or 88.9%, and table games accounted for approximately $13,717,000, or 11.1%, for the nine month period ended September 30, 2001. Casino revenues attributed to Fitzgeralds Tunica were $68,609,000, or 82.6% of its gross revenues, of which $61,581,000, or 89.8%, were derived from slot machine revenues and $7,028,000, or 10.2%, were derived from table games revenues for the nine months ended September 30, 2002, compared to casino revenues of approximately $63,471,000, or 82.0% of its gross revenues, of which $56,480,000, or 89.0%, were derived from slot machine revenues and $6,991,000, or 11.0%, were derived from table games revenues for the nine month period ended September 30, 2001. Casino revenues attributed to Fitzgeralds Black Hawk were $27,666,000, or 94.3% of its gross revenues, of which $27,126,000, or 98.0%, were derived from slot machine revenues, and $540,000, or 2.0%, were derived from table game revenues for the nine months ended September 30, 2002, compared to casino revenues of approximately $29,209,000, or 93.3% of its gross revenues, of which $28,563,000, or 97.8%, were derived from slot machines revenues and $646,000, or 2.2%, were derived from table games revenues for the nine month period ended September 30, 2001. Casino revenues attributed to Fitzgeralds Las Vegas were $28,349,000, or 67.7% of its gross revenues, of which $21,902,000, or 77.3%, were derived from slot machine revenues, and $6,447,000, or 22.7%, were derived from table game revenues for the nine months ended September 30, 2002, compared to casino revenues of approximately $30,562,000, or 68.3% of its gross revenues, of which $24,482,000 or 80.1%, were derived from slot machine revenues and $6,080,000, or 19.9%, were derived from table games revenues for the nine month period ended September 30, 2001. The consolidated average number of slot machines in operation was 2,877 during the nine months ended September 30, 2002, compared to 2,899 during the nine month period ended 27 September 30, 2001. Fitzgeralds Tunica accounted for 1,378, or 47.9%, Fitzgeralds Black Hawk accounted for 593 or 20.6% and Fitzgeralds Las Vegas accounted for 906 or 31.5%. The consolidated average win per slot machine per day was approximately $141 for the nine months ended September 30, 2002, with an average of approximately $164, $168 and $89 at Fitzgeralds Tunica, Fitzgeralds Black Hawk and Fitzgeralds Las Vegas, respectively, compared to $138 for the nine months ended September 30, 2001, with an average of approximately $155, $176 and $93, respectively, for the nine month period ended September 30, 2001. The consolidated average number of table games in operation during the nine months ended September 30, 2002 was 64, of which Tunica accounted for 34, or 53.1%, Fitzgeralds Black Hawk accounted for 6, or 9.4%, and Fitzgeralds Las Vegas accounted for 24, or 37.5%, compared to 63 during the nine months ended September 30, 2001, of which Tunica accounted for 34, or 54.0%, Fitzgeralds Black Hawk accounted for 6, or 9.5%, and Fitzgeralds Las Vegas accounted for 23, or 36.5%. The consolidated average win per table game per day during the nine months ended September 30, 2002 was approximately $748, with an average of approximately $752, $330 and $845 at Fitzgeralds Tunica, Fitzgeralds Black Hawk and Fitzgeralds Las Vegas, respectively, compared to approximately $752, with an average of approximately $761, $394 and $832 at Fitzgeralds Tunica, Fitzgeralds Black Hawk and Fitzgeralds Las Vegas, respectively during the nine month period ended September 30, 2001. At Fitzgeralds Black Hawk the maximum wager is limited to $5.00. Consolidated room revenues for the nine months ended September 30, 2002 was approximately $11,837,000, or 7.7% of gross revenues compared to approximately $12,309,000 or 8.0% for the nine month period ended September 30, 2001. Of this amount, Fitzgeralds Tunica accounted for $6,272,000, or 53.0% with 507 rooms and Fitzgeralds Las Vegas accounted for $5,565,000, or 47.0%, with 638 rooms compared to $6,182,000 or 50.2% at Fitzgeralds Tunica and $6,127,000 or 49.8% at Fitzgeralds Las Vegas during the nine months ended September 30, 2001. During the nine months ended September 30, 2002, at Fitzgeralds Tunica the average daily rate was $49 and the occupancy rate was 95.1% and at Fitzgeralds Las Vegas the average daily rate was $36 and the occupancy rate was 88.8% compared to the $48 and 93.3% and $38 and 93.6%, respectively during the nine month period ended September 30, 2001. Consolidated food and beverage revenues for the nine months ended September 30, 2002 amounted to $14,918,000, or 9.7% of consolidated gross revenues compared to $14,995,000 or 9.8% of consolidated gross revenues for the nine months ended September 30, 2001. Of this amount, Fitzgeralds Tunica accounted for $7,130,000, or 47.8%, Fitzgeralds Black Hawk accounted for $1,480,000, or 9.9% and Fitzgeralds Las Vegas accounted for $6,308,000, or 42.3% during the nine months ended September 30, 2002, compared to $6,833,000 or 45.6%, $1,847,000 or 12.3% and $6,315,000 or 42.1%, respectively, during the nine month period ended September 30, 2001. Other consolidated revenues consisted primarily of commission and retail income and totaled approximately $2,895,000, or 1.9% of consolidated gross revenues for the nine months ended September 30, 2002 compared to $2,883,000, or 1.9% of consolidated gross revenues during the nine month period ended September 30, 2001. Of this amount, Fitzgeralds Tunica accounted for $1,048,000 or 36.2%, Fitzgeralds Black Hawk accounted for approximately $190,000 or 6.6%, and Fitzgeralds Las Vegas accounted for $1,657,000, or 57.2% during the nine months ended September 30, 2002, compared to $896,000 or 31.1%, $236,000 or 8.2% and $1,751,000 or 60.7%, respectively, during the nine month period ended September 30, 2001. Consolidated promotional allowances included in the consolidated gross revenues for the nine months ended September 30, 2002, were $25,268,000, or 16.4% of consolidated gross 28 revenues compared to $23,736,000, or 15.5% of consolidated gross revenues during the nine month period ended September 30, 2001. Of this amount, Fitzgeralds Tunica accounted for $16,543,000, or 65.5%, Fitzgeralds Black Hawk accounted for $4,367,000, or 17.3%, and Fitzgeralds Las Vegas accounted for $4,358,000, or 17.2%, during the nine months ended June 30, 2002, compared to $14,205,000, or 59.9%, $5,376,000, or 22.6% and $4,155,000 or 17.5%, respectively, during the nine month period ended September 30, 2001. Consolidated casino operating expenses for the nine months ended September 30, 2002, were $45,199,000, or 29.3% of consolidated gross revenues and 36.3% of consolidated casino revenues compared to $42,181,000, or 27.5% of consolidated gross revenues and 34.2% of consolidated casino revenues during the nine month period ended September 30, 2001. These expenses were primarily comprised of salaries, wages and benefits, and operating expenses of the casinos. Of the consolidated casino operating expenses, Fitzgeralds Tunica accounted for $23,777,000, or 52.6%, Fitzgeralds Black Hawk accounted for $7,472,000, or 16.5%, and Fitzgeralds Las Vegas accounted for $13,950,000, or 30.9%, during the nine months ended September 30, 2002, compared to $20,987,000, or 49.8%, $7,612,000, or 18.0% and $13,582,000, or 32.2%, respectively, during the nine month period ended September 30, 2001. Consolidated general and administrative expenses for the nine months ended September 30, 2002 were $18,322,000, or 11.9% of consolidated gross revenues, compared to $19,306,000, or 12.6%, for the nine month period ended September 30, 2001. During the nine months ended September 30, 2002 Fitzgeralds Tunica accounted for $7,871,000, or 43.0%, Fitzgeralds Black Hawk accounted for $3,321,000, or 18.1%, Fitzgeralds Las Vegas accounted for $7,110,000, or 38.9% and unallocated corporate expenses accounted for approximately $20,000, compared to $8,415,000, or 43.6%, $3,539,000, or 18.3% and $7,352,000, or 38.1%, respectively, during the nine month period ended September 30, 2001. Consolidated depreciation and amortization for the nine months ended September 30, 2002 was approximately $10,705,000, or 6.9% of consolidated gross revenues compared to $0 in the nine month period ended September 30, 2001. The increase of $10,705,000 was due to the discontinuance of the recognition of depreciation and amortization by the predecessor company subsequent to the filing of the bankruptcy cases on December 5, 2000. During the nine months ended September 30, 2002, Fitzgeralds Tunica accounted for $5,481,000, or 51.2%, Fitzgeralds Black Hawk accounted for $1,091,000, or 10.2%, and Fitzgeralds Las Vegas accounted for $2,203,000, or 20.6%. Corporate amortization of deferred financing costs accounted for $1,930,000, or 18.0% of consolidated depreciation and amortization expense. Of the consolidated depreciation and amortization expense, approximately $7,285,000, or 68.1%, is depreciation expense, and $3,420,000, or 31.9%, is amortization expense. Consolidated operating income for the nine months ended September 30, 2002 was $13,434,000, or 8.6% of consolidated gross revenues compared to $24,023,000 or 15.7% for the nine month period ended September 30, 2001. The $10,589,000 decrease is primarily due to the discontinuance of the recognition of depreciation and amortization by the predecessor in the prior year. Fitzgeralds Tunica accounted for operating income of $11,812,000, or 87.9%, Fitzgeralds Black Hawk accounted for operating income of $5,037,000, or 37.5%, Fitzgeralds Las Vegas accounted for operating loss of $1,341,000, or (10.0%), and the unallocated corporate loss principally for amortization was $2,074,000 or (15.4%) of consolidated operating income for the nine months ended September 30, 2002. Consolidated net interest expense for the nine months ended September 30, 2002 was approximately $13,477,000 or 8.8% of consolidated gross revenues compared to $7,000 net 29 interest expense during the period ended September 30, 2001. The $13,470,000 increase is attributable to interest expense associated with the 11.653% Senior Secured Notes. The predecessor companies discontinued accruing interest on their debt on December 5, 2000 with the commencement of the Bankruptcy Cases. Fitzgeralds Tunica accounted for interest income of $23,000, Fitzgeralds Black Hawk accounted for net interest income of $7,000, Fitzgeralds Las Vegas accounted for net interest expense of $14,000 and the unallocated corporate net interest expense associated with the 11.653% Senior Secured Notes was approximately $13,493,000 during the nine months ended September 30, 2002 compared to net interest expense of $5,000, $4,000 and net interest income of $2,000 respectively, for the nine month period ended September 30, 2001. As a result of the foregoing, the Company realized a consolidated net loss of $81,000 for the nine months ended September 30, 2002 compared to net income of $24,047,000 during the nine months ended September 30, 2001. The $24,128,000 decrease in net income is principally attributed to an increase in depreciation and amortization expense and interest expense as previously discussed. Adjusted EBITDA is presented solely as a supplemental disclosure and is used by the Company to assist in the evaluation of the cash generating ability of its gaming business. Consolidated Adjusted EBITDA represents earnings before interest, income taxes, depreciation and amortization, (gain)/loss on sale of assets, other non-operating expenses and excluding pre-opening costs associated with the acquisition of the Fitzgeralds casinos and reorganization items related to the bankruptcy of the predecessor company. Consolidated Adjusted EBITDA for the nine months ended September 30, 2002 was $24,273,000, of which Fitzgeralds Tunica accounted for $17,287,000, Fitzgeralds Black Hawk accounted for $6,144,000, Fitzgeralds Las Vegas accounted for $862,000 and approximately $(20,000) was associated with unallocated corporate general and administrative expenses. Adjusted EBITDA should be viewed only in conjunction with all of the Company's financial data and statements, and should not be construed as an alternative either to income from operations (as an indicator of the Company's operating performance) or to cash flows from operating activities as a measure of liquidity. LIQUIDITY AND CAPITAL RESOURCES At September 30, 2002, the Company had cash and cash equivalents of approximately $21.7 million. Cash and cash equivalents included $6.3 million at Majestic Investor Holdings, LLC, $8.2 million at Fitzgeralds Mississippi, $3.0 million at Fitzgeralds Black Hawk and $4.2 million at Fitzgeralds Las Vegas. The Company has met its capital requirements to date through net cash from operations and proceeds of $3.8 million from Fitzgeralds Gaming Corporation related to the purchase price adjustment on certain assets and liabilities acquired on December 6, 2001. For the nine months ended September 30, 2002, net cash provided by operating activities totaled approximately $14.9 million. For the nine months ended September 30, 2002, cash used by investing activities totaled approximately $1.1 million. For the nine months ended September 30, 2002, cash used by financing activities totaled approximately $9.9 million. Approximately $6.5 million was repaid on the outstanding line of credit and approximately $1.4 million was expended for professional fees related to the issuance of the Company's 11.653% Senior Secured Notes during the nine months ended September 30, 2002. As of November 14, 2002, there are no outstanding borrowings under the Company's $15.0 million credit facility. Also during the nine months ended September 30, 2002, cash distributions were made to BDI, Inc. under the Management Agreement totaling approximately $1.8 million. In connection with the issuance by the Company of $152,632,000 of unregistered 11.653% Senior Secured Notes due 2007 (the "Unregistered Notes") on December 6, 2001, the Company entered in a registration rights agreement pursuant to which the Company agreed to file with the Securities and Exchange Commission ("SEC") a registration statement (the 30 "Registration Statement") to exchange up to $152,632,000 principal amount of 11.653% Senior Secured Notes due 2007 registered under the Securities Act of 1933 (the "Registered Notes") for any and all of its outstanding Unregistered Notes. The registration rights agreement requires the Company to pay liquidated damages to the holders of the Unregistered Notes if the Registration Statement was not declared effective by the SEC on or prior to April 5, 2002. The Registration Statement was declared effective by the SEC on August 8, 2002 and the Company is required to pay liquidated damages pursuant to the terms of the registration rights agreement for the period from April 6, 2002 until August 8, 2002. On May 31, 2002, in connection with the first scheduled interest payment on the Unregistered Notes, the Company made its initial liquidated damages payment of $61,053 to the holders of the Notes. The final liquidated damages payment of $114,474 will be paid to the holders of the Unregistered Notes with the next scheduled interest payment on November 30, 2002. Pursuant to the Registration Statement, the offer to exchange the Registered Notes for any or all of the Unregistered Notes commenced on August 8, 2002 and was completed on Friday, September 6, 2002 at 5p.m. Eastern Standard Time. On October 17, 2002, the Company redeemed $865,000 of the 11.653% Senior Secured Notes at a discount to par of 87 3/4%, plus accrued interest of $38,359. Management believes that the Company's cash flow from operations and its current line of credit will be adequate to meet the Company's anticipated future requirements for working capital, its capital expenditures and scheduled payments of interest and principal on the Company's 11.653% Senior Secured Notes and other permitted indebtedness for the year 2002. No assurance can be given, however, that such proceeds and operating cash flow, in light of increased competition will be sufficient for such purposes. If necessary and to the extent permitted under the Indenture, the Company will seek additional financing through borrowings and debt or equity financing. There can be no assurance that additional financing, if needed, will be available to the Company, or that, if available, the financing will be on terms favorable to the Company. In addition, there is no assurance that the Company's estimate of its reasonably anticipated liquidity needs is accurate or that unforeseen events will not occur, resulting in the need to raise additional funds. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS In April 2002, the Financial Accounting Standards Board ("FASB") issued SFAS No. 145, "Rescission of FASB statements, No. 4, 44 and 64, Amendment of FASB Statement No. 13 and Technical Corrections" which is effective for fiscal years beginning after May 15, 2002. SFAS No. 145 updates, clarifies and simplifies existing accounting pronouncements. Management does not expect SFAS No. 145 to have a material impact on the Company's consolidated financial position, results of operations or cash flows. In June 2002, the FASB issued SFAS No. 146 "Accounting for Costs Associated with Exit or Disposal Activities" which will become effective for exit or disposal activities initiated after December 31, 2002. SFAS No. 146 supercedes Emerging Issues Task Force Issue No. 94-3 "Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity." SFAS No. 146 requires that a liability for a cost associated with an exit or disposal activity be recognized when the liability is incurred and states that an entity's commitment to an exit plan, by itself, does not create a present obligation that meets the definition of a liability. SFAS No. 146 also establishes that fair value is the objective for initial measurement of the liability. Adoption of SFAS No. 146 will have no impact on historical consolidated financial position or results of operations. In October 2002, the FASB issued SFAS No. 147, "Acquisition of Certain Financial Institutions," which is not applicable to the Company. 31 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK There have been no material changes from the information reported in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2001. ITEM 4. CONTROLS AND PROCEDURES Within the 90 days prior to the date of this report, the Company carried out an evaluation, under the supervision and with the participation of the Company's management, including its Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company's disclosure controls and procedures pursuant to Rule 15d-15 of the Securities Exchange Act of 1934. Based upon that evaluation, the Company's Chief Executive Officer and Chief Financial Officer concluded that the Company's disclosure controls and procedures are effective in timely alerting them to material information relating to the Company required to be disclosed in the Company's periodic SEC reports. There have been no significant changes in the Company's internal controls or in other factors which could significantly affect internal controls subsequent to the date the Company carried out its evaluation. 32 PART II OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits The exhibit numbers in the following list correspond to the number assigned to such exhibits in the Exhibit Table of Item 601 of Regulation S-K: Exhibit Numbers Description ------- ----------- 10.1 Employment Agreement dated as of October 21, 2002 by and between the Company and Jon Scott Bennett, filed herewith. 99.1 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 99.2 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (b) On August 8, 2002, the Company filed a Report on Form 8-K under Item 9 announcing an offer to exchange up to $152,632,000 principal amount of 11.653% Senior Secured Notes due 2007. On September 9, 2002, the Company filed a Report on Form 8-K under Item 9 announcing the successful completion of the exchange offer. 33 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. MAJESTIC INVESTOR HOLDINGS, LLC By: /s/ Don H. Barden November 13, 2002 --------------------------------------------------------- Don H. Barden, President and Chief Executive Officer By: /s/ Jon S. Bennett November 13, 2002 ---------------------------------------------------------- Jon S. Bennett, Vice President and Chief Financial Officer (Principal Financial and Accounting Officer) MAJESTIC INVESTOR CAPITAL CORP. By: /s/ Don H. Barden November 13, 2002 --------------------------------------------------------- Don H. Barden, President and Chief Executive Officer By: /s/ Jon S. Bennett November 13, 2002 ---------------------------------------------------------- Jon S. Bennett, Vice President and Chief Financial Officer (Principal Financial and Accounting Officer) 34 CERTIFICATIONS I, Don H. Barden, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Majestic Investor Holdings, LLC and Majestic Investor Capital Corp.; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact necessary to make the statements made, in light of the circumstances under with such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a - 14 and 15d - 14) for the registrant and have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this quarterly report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: November 13, 2002 /s/ Don H. Barden ----------------------------------------- Don H. Barden President and Chief Executive Officer 35 I, Jon S. Bennett, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Majestic Investor Holdings, LLC and Majestic Investor Capital Corp.; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact necessary to make the statements made, in light of the circumstances under with such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a - 14 and 15d - 14) for the registrant and have: a. designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b. evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c. presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): a. all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b. any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this quarterly report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: November 13, 2002 /s/ Jon S. Bennett ----------------------------------------- Jon S. Bennett Vice President and Chief Financial Officer 36 EXHIBIT INDEX Exhibit Numbers Description ------- ----------- 10.1 Employment Agreement dated as of October 21, 2002 by and between the Company and Jon Scott Bennett, filed herewith. 99.1 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes- Oxley Act of 2002 99.2 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes- Oxley Act of 2002

MAJESTIC INVESTOR HOLDINGS LLC 10-Q